Aemetis, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Financial amounts below are in U.S. dollars; unless noted, amounts are in millions. The filing is unaudited. Aemetis operates ethanol and coproduct facilities in California, a biodiesel and glycerin facility in India, and consolidated Goodland Advanced Fuels, Inc. (GAFI) as a variable interest entity beginning in July 2017.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $38.935 | $39.377 | $111.273 | $105.762 |
| Gross profit | $1.955 | $3.666 | $3.073 | $7.696 |
| Gross margin | 5.0% | 9.3% | 2.8% | 7.3% |
| Operating income (loss) | $(3.103) | $0.357 | $(8.738) | $(1.717) |
| Net loss attributable to Aemetis | $(7.510) | $(4.095) | $(22.024) | $(14.191) |
| Loss per share, basic and diluted | $(0.38) | $(0.21) | $(1.11) | $(0.72) |
- Q3 revenue fell 1% year over year; nine-month revenue rose 5%. North America revenue increased 6% in Q3 and 8% for nine months, while India revenue declined 47% and 16%, respectively.
- Margins weakened as production costs rose faster than product prices. North America gross profit declined amid corn-cost increases and pricing pressure on ethanol and wet distillers’ grains (WDG). India’s Q3 gross result turned to a loss, affected by lower sales and higher feedstock costs.
- Research and development expense rose to $1.876 million in Q3 and $2.072 million for nine months, primarily for construction and testing of the cellulosic ethanol Integrated Demonstration Unit.
- Cash and equivalents were $1.749 million at September 30, 2017, versus $1.486 million at December 31, 2016. Current assets were $12.640 million and current liabilities $33.816 million, implying negative working capital of approximately $21.176 million. The company reported a current ratio of 0.38, up from 0.26.
- Nine-month operating cash flow was negative $6.356 million, compared with positive $0.444 million in 2016. Investing cash outflow was $0.681 million; financing provided $7.067 million. Ending cash increased by $0.263 million.
- Total debt was reported at $148.583 million, up from $111.714 million at year-end 2016. Stockholders’ deficit was $71.546 million. Interest expense for the nine months was $9.873 million, plus $4.112 million of amortization expense.
Material changes and operating developments
- California ethanol production averaged 111% of stated 55-million-gallon annual nameplate capacity in Q3 and 108% for the first nine months. Q3 ethanol volume increased 4% and average price increased 4%; WDG volume rose 8% while its average price fell 11%.
- India Q3 biodiesel and refined-glycerin volumes fell approximately 50% and 49%, respectively. Management attributed lower domestic sales partly to India’s July 2017 GST increase from 11% to 18%, which raised the company’s cost burden. Nine-month biodiesel volume was down 39%, while glycerin volume was up 13%.
- GAFI’s Goodland plant and related operations were consolidated from July 10, 2017. GAFI had $23.373 million of net debt at September 30; Aemetis recorded a $0.707 million non-controlling interest loss for the period.
- The company entered an agreement to sell CO2 produced at the Keyes plant, described as incremental income, but the filing provides no expected amount.
Liquidity, debt, outlook and risks
- Third Eye Capital debt excluding GAFI was approximately $70.9 million at September 30. Its stated maturity was April 1, 2018, with an option to extend to April 1, 2019 subject to notice and a 5% extension fee. The revolving facility had no remaining availability. GAFI debt of $23.373 million was stated to mature July 10, 2019.
- Management said operations had relied on senior-lender support and that substantially all excess operating cash had been remitted to the senior lender. Plans to fund operations included refinancing senior debt, raising up to $50 million through EB-5 Phase II, obtaining remaining Phase I funds, generating operating cash, using working-capital arrangements, and selling common stock through an at-the-market program. These are plans, not assured funding.
- Management expected revenue growth through Q4 2017 and into 2018, citing North American market development and expanded India sales channels. It provided no numerical financial guidance and cautioned that adequate liquidity and additional financing were not assured.
- Key risks include weak liquidity, substantial debt and near-term refinancing needs, volatile feedstock and product-price spreads, India tax-policy effects, reliance on lenders and working-capital partners, and dependence on major counterparties. J.D. Heiskell accounted for 92% of North America segment revenue in Q3 and 93% for nine months.
- Legal matters include Aemetis’s lawsuit against EdenIQ and EdenIQ’s cross-complaint; the company said potential losses could not be estimated at this stage. In the Greenshift corn-oil patent litigation, rulings found the patents invalid and unenforceable, but appeals remained; the filing said damages could be $1 million or more if Greenshift successfully appealed the invalidity findings.
- Management reported disclosure controls effective at a reasonable-assurance level and no material change in internal control over financial reporting during the quarter. Risk factors were unchanged from the 2016 Form 10-K.
Important facts for investors to verify
- Whether Aemetis can refinance or extend the Third Eye Capital debt before its stated April 2018 maturity, and the cost and conditions of any extension.
- Whether EB-5 Phase I escrow funds are released and Phase II financing is raised; the filing’s funding targets are not commitments.
- Cash generation, working-capital needs, and the availability and terms of lender and supplier financing, given negative working capital and negative operating cash flow.
- Whether margins recover as corn, ethanol, WDG, biodiesel, feedstock, and energy prices change, and whether India sales recover after the GST increase.
- The financial contribution, funding obligations, and covenant implications of consolidating GAFI and its Goodland plant.
- Developments in the EdenIQ and Greenshift litigation and any resulting financial exposure.